Fed's Evans calls for tackling too-big-to-fail issue

LONDON, July 1 (Reuters) - No single adjustment can solve the problem of how to deal with the failure of systemically important financial institutions, Chicago Federal Reserve Bank President Charles Evans said on Wednesday.

Evans took on the issue of companies deemed "too big to fail" in remarks prepared for a speech to the European Economics and Financial Center in London.

"TBTF is a very important, but difficult problem," he said. "It will likely take a multifaceted solution."

The so-called too big to fail issue is the perception that the collapse of certain firms would have such large spillovers across the financial system and the broader economy that regulators would step in to prevent failure.

Evans is just one of a number of regional Fed presidents to highlight the issue, led by Minneapolis Fed President Gary Stern.

The financial crisis that has raged since 2007 has shown major weakness in financial regulation, Evans said.

"If we truly hope to be able to say 'never again,' we need to act aggressively," he said.

"I hope we can grasp the moment and not let the opportunity to implement meaningful reform pass."

The policy-maker said a "classic moral hazard problem," and excessive risk-taking, is created when huge institutions assume the government will bail them out if they get into trouble, Evans said.

Based on the events of the past two years, market participants would be justified in thinking that certain firms would not be allowed to fail in the future, he added.

"In order to create effective market discipline, we need a regime shift that removes such doubt," he said. "Failure has to be a real possibility for all institutions."

Evans said regulators need to prove that they would not cave into pressure to bail out certain firms.

"Credibility can take years to develop and can be destroyed quickly by just one instance of forbearance or the provision of exceptional assistance," he noted.

(Writing by Ros Krasny in San Francisco, Editing by Chizu Nomiyama)